We have a conjunction of two issues here: 1) the largest natural disaster and 2) the biggest example of the rules vs. discretion problem, in the history of the developed world.

(For those not in the know, Kydland and Prescott won a Nobel Prize in 2004 for pointing out that it isn't very bright for the government to give people money to rebuild after a natural disaster because they will rebuild in the same spot and get clobbered again).

I'm not going to argue that we shouldn't give people money to rebuild, but rather that there should be strings attached. Specifically, give them a bonus if they move elsewhere. It doesn't have to be far - Hammond, Ponchatoula, and Baton Rouge will all do OK in a Category 5 storm.

It would be far cheaper to build in those areas, and it may be an easy thing to pull off if everyone is out of NOLA for a few months.

Then take the remaining drier and higher areas of New Orleans and build the super-levee that has been on the table for the past 5 years around them. That proposal would ring the CBD, French Quarter and other areas of historic and tourist interest. Most of this stuff is old, and it built on the more desirable higher ground. It is the construction of the last 100 years that is the problem.

Then there is the problem of the destroyed neighborhoods and the toxic gumbo swilling around them. This is an environmental hazard of unknowable long-term consequences. I am not a fan of eminent domain, nor am I phobic about environmental hazards, but this is far outside our past experience. I suggest using eminent domain extensively, bulldozing, burying and capping all the low lying areas of the city - just as you would a landfill.

Over the top of this could be built new, low population density infrastructure.

In particular, New Orleans has needed a new airport for decades. For years, the best proposal on the table has been to build an island out of fill in Lake Ponchartrain. This is much more practical now that Lake Ponchartrain has moved south. The current airport in Kenner locked in by (now wrecked) neighborhoods, and primarily serves tourists anyway. Rebuild it much closer, but outside, the super-levee.

Then connect the new airport, the area inside the super-levee, and the now more heavily populated outlying areas with a bullet train. This could run along the current I-10 - which will need to be repaired - but which is already elevated above flood level for most of the 50 mile stretch from Laplace through greater New Orleans and into St. Tammany Parish. I'm not stupid enough to think that a bullet train is cost-effective for transportation, but if your don't put stops in low lying areas, people won't build houses there in the future.

All the other destroyed and capped areas can be converted into other amenities, like golf courses, marinas, amusement parks and so on. Just don't let people build houses there again.

This proposal has the virtue that most of what tourists come to New Orleans for is still intact - except for the homes of the people who service the tourists. So, tourism - which is the biggest industry in NOLA anyway - will survive. This would even be a good time to move the Super Bowl, the Final Four, and other major sporting events into New Orleans, where seemingly most of the fans want them to be anyway.

The big potential criticism of this proposal - I'm told that Rush Limbaugh used this on air - is that the port of New Orleans is too important. This is a misnomer. As pointed out by The Quaker Economist, the Port of Louisiana - primarily located at the mouth of river is the 5th largest port in the world. Most of the shipping traffic already bypasses New Orleans proper.

I suggest that the time has come to largely abandon this site as a population center. A little history lesson shows that this site was selected as the shortest point for portage between Lake Ponchartrain and the Mississippi River. This was necessary because the 100 miles of winding river going down to the gulf was a difficult trip in the age of sail. This raison de etre is, of course, moribund.

So, leave the history and the tourism and get the vast majority of the residences and businesses out of the bowl. Nostalgia is not a good enough reason to let people rebuild in this spot. And ... make Jean Lafitte National Park the Las Vegas or Disneyworld of the 21st century.

The legacy media have been tossing around numbers - provided by the insurance industry - of $20-30 billion for losses associated with Katrina.

This is so far off that I find it offensive. A ballpark figure is much higher.

The only estimates that have come out so far are insured losses. There are three problems with this. First, New Orleans is not a heavily insured city. Second, initial insurance estimates have been notoriously low for several disasters the last few years. Third, we've never had a disaster like this before.

Estimates of national wealth from the World Bank are $400K per capita in the U.S. Currently, with the failure to close the 17th Street levee break in New Orleans, the entire east bank of Orleans and Jefferson parish is at risk. Something like 800K live in that area. This places the total wealth of that are at $320 billion.

Now, to be careful, that World Bank estimate is very thorough, and it includes a lot of human capital (that can't be destroyed without loss of life) and agricultural wealth (that gets counted for a country, but is non-existent in the east bank).

Even so, current estimates of insured losses represent only 6-10% of the total wealth in the east bank. Based on what I know of New Orleans, and what I have seen on TV, this seems wildly low. Something more like $100-150 billion for all damages seems more realistic.

On top of this, the GDP of the east bank is roughly $2.5 billion per month. They are talking a bare minimum of 2 months before people can even come back everywhere across the city, much less get back to a reasonable facsimile of earlier production.

If New Orleans can be rebuilt, there is a big problem looming for homeowners there - the small value of their structure and the high value of the land under it.

Of course, most homeowner's insurance will not cover the flood losses being experienced. So, almost all the damage will come under national flood insurance and whatever support FEMA ends up offering. We won't even get into how many people in New Orleans didn't have flood insurance - many houses there are passed down from one generation to the next there, and do not have the strictures of mortgage financers to make sure they were properly insured.

In most situations like this, homeowners benefit from the huge run up in real estate prices that most of the country has experienced over the last couple of decades. This puts the value of the structure above (and sometimes far above) rebuilding costs. Most insurance doesn't cover 100% replacement, but with a lot of asset appreciation you can rebuild something comparable for the amount the insurance will cover.

So, let me use my former house as a typical example. In 2000, we sold a 70 year old, 1500 sq. ft. home, in a good neighborhood, for about $150K. At that time there was a comparable lot available in our neighborhood that sold for $100K. This suggests that 2/3 of the price we got for our home was for the lot, and 1/3 for the structure. This is not the way real estate prices work in most of the country. In some sense, New Orleans is like a very poor San Francisco.

With rebuilding costs (approximately) 100 per sq. ft., the owner of a comparable home will get something like $40K in cash, which will allow them to build a 400 sq. ft. house on their (still valuable) lot to "replace" their 1500 sq ft. home. That's a big problem.

I am not terribly familar with the payments that national flood insurance or FEMA make, so I'd appreciate any constructive criticism that readers could offer on this argument.

Folks - this is a lot worse than you think it is. It is 7:30 MDT as I write this, and I want to emphasize for everyone reading this around the world that there are no aerial or ground photos available yet from a 40 mile wide swath where the eye of the storm passed.

Nothing from Waveland. Nothing from Slidell. Nothing from Bay St. Louis. Nothing from Chalmette. Nothing from Pass Christian. Nothing from Buras and the West Bank of New Orleans. Very little from Gulfport.

This is very much like Andrew in 1992. No one knew what happened in Homestead for several days after the storm because they couldn't even get close.

Almost all the shots we've seen so far are from New Orleans west of the Industrial Canal, and from Biloxi. These places are no less than 10 miles from the edge of where the eye passed, and the eye was 30 miles wide.

Diamond's thesis seems to revolve around the ideas that Europeans were successful and certain things that others weren't - like domesticating animals (or popularizing guns, spreading germs, and making a lot of steel).

Has anyone else noticed that there isn't much there about what the Europeans tried and failed to do, or what non-Europeans tried and succeeded at?

It seems to me there is a 2x2 strategic game here. Europeans on one side, and non-Europeans on the other. The opponents choose one of two strategies, leading to one of the four cells being the outcome.

Diamond's idea is fine - but what about the other outcomes? Why did Europeans domesticate animals instead of doing something else? Why did non-Europeans choose not to?

Interpreting Diamond seems to be a lot like listening to jazz - the silences are as important as the notes that are hit.

Genesis

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